Gerdau(GGB) - 2024 Q1 - Quarterly Report

Condensed Consolidated Interim Financial Statements Consolidated Balance Sheets As of March 31, 2024, total assets increased to R$77.0 billion, total liabilities remained stable, and total equity grew to R$52.1 billion Consolidated Balance Sheet Summary (in thousands of BRL) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | 29,742,522 | 29,197,937 | | Total Non-Current Assets | 47,218,547 | 45,687,207 | | Total Assets | 76,961,069 | 74,885,144 | | Total Current Liabilities | 10,642,354 | 11,284,612 | | Total Non-Current Liabilities | 14,207,772 | 14,361,669 | | Total Liabilities | 24,850,126 | 25,646,281 | | Total Equity | 52,110,943 | 49,238,863 | | Total Liabilities and Equity | 76,961,069 | 74,885,144 | Consolidated Statements of Income Q1 2024 net sales decreased to R$16.2 billion and net income fell to R$2.05 billion, despite a significant gain from joint venture operations Q1 2024 vs Q1 2023 Income Statement (in thousands of BRL) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | 16,210,263 | 18,872,303 | | Gross Profit | 2,419,719 | 3,628,675 | | Income Before Taxes | 2,276,565 | 4,242,342 | | Net Income | 2,052,872 | 3,215,399 | | Net Income Attributable to Owners | 2,043,782 | 3,205,919 | | Basic Earnings Per Share (R$) | 0.97 | 1.53 | - The company recognized a gain of R$808.4 million from the sale of joint venture interests in Q1 2024, which significantly contributed to income before taxes[4][29] Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2024 increased to R$3.03 billion, primarily due to a significant positive cumulative translation adjustment Q1 2024 vs Q1 2023 Comprehensive Income (in thousands of BRL) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income for the period | 2,052,872 | 3,215,399 | | Cumulative translation adjustment | 1,330,696 | (701,478) | | Recycling of cumulative translation adjustment | (407,560) | - | | Total comprehensive income for the period | 3,029,923 | 2,818,013 | Consolidated Statements of Changes in Equity Total equity increased from R$49.2 billion to R$52.1 billion by March 31, 2024, driven by net income and other comprehensive income Changes in Equity for Q1 2024 (in thousands of BRL) | Description | Amount | | :--- | :--- | | Balance as of January 1, 2024 | 49,238,863 | | Net Income | 2,052,872 | | Other comprehensive income (loss) | 977,051 | | Dividends/interest on equity | (175,409) | | Other changes | 18,566 | | Balance as of March 31, 2024 | 52,110,943 | Consolidated Statements of Cash Flows Q1 2024 net cash from operating activities decreased to R$831.3 million, with investing activities providing R$362.6 million, increasing cash by R$737.5 million Q1 2024 vs Q1 2023 Cash Flows (in thousands of BRL) | Cash Flow Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | 831,290 | 1,963,686 | | Net cash provided (used) in investing activities | 362,635 | (1,073,172) | | Net cash used in financing activities | (516,069) | (719,399) | | Increase in cash and cash equivalents | 737,478 | 106,019 | | Cash and cash equivalents at end of period | 3,743,123 | 2,581,882 | Notes to the Condensed Consolidated Interim Financial Statements Note 3: Condensed Consolidated Interim Financial Statements This note details the Q1 2024 sale of joint venture interests for US$325 million, generating a R$808.4 million gain, and outlines remaining equity method investments - On January 17, 2024, the company sold its interests in joint ventures Diaco S.A. (49.85%) and Gerdau Metaldom Corp (50.00%) to its partner, the INICIA Group, for US$325 million[29] - The sale of these joint ventures resulted in a recognized gain of R$808.4 million, which includes R$407.6 million reclassified from the cumulative translation adjustment[29] Note 12: Loans and Financing As of March 31, 2024, total loans and financing were R$10.2 billion, primarily in US Dollars, with an unused US$875 million global credit line Total Loans and Financing (in thousands of BRL) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Financing | 10,203,785 | 10,079,675 | | Current | 1,673,459 | 1,783,201 | | Non-current | 8,530,326 | 8,296,474 | Financing by Currency (in thousands of BRL) | Currency | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Brazilian Real (R$) | 2,547,023 | 2,667,065 | | U.S. Dollar (US$) | 7,377,563 | 7,169,183 | | Other currencies | 279,199 | 243,427 | - The company has a US$875 million global credit line maturing in September 2027, which was entirely unused as of March 31, 2024[52] Note 14: Financial Instruments This note outlines the company's financial risk management, derivative use for hedging, and capital management policy, including a US$0.4 billion net investment hedge - The company's capital management risk policy targets a Net Debt/EBITDA ratio of less than or equal to 1.5 times and an average debt maturity of more than 6 years[64] Derivative Instruments Fair Value (in thousands of BRL) | Contract Type | Notional Value (Mar 31, 2024) | Fair Value - Asset (Mar 31, 2024) | Fair Value - Liability (Mar 31, 2024) | | :--- | :--- | :--- | :--- | | Currency forward contracts | US$ 8.2 million | - | 15,759 | | Commodity contracts | US$ 14.4 million | 35,370 | 8,325 | | Swaps IPCA x DI | R$ 300.0 million | 1,669 | - | | Swaps USD x DI | US$ 150.4 million | 1,433 | - | | Total Fair Value | | 38,472 | 24,084 | - The company hedges part of its net investments in foreign subsidiaries using US$0.4 billion of its Ten Years Bonds[86] Note 15: Tax, Civil and Labor Claims and Contingent Assets The company has R$2.22 billion in provisions for probable claims and discloses significant contingent liabilities, including R$7.8 billion in tax disputes Provisions for Claims (in thousands of BRL) | Provision Type | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Tax provisions | 1,783,884 | 1,737,984 | | Labor provisions | 408,812 | 413,179 | | Civil provisions | 31,783 | 34,662 | | Total | 2,224,479 | 2,185,825 | - The company has significant contingent liabilities (possible loss) related to the disallowance of goodwill amortization from a 2004/2005 corporate restructuring, with assessments totaling R$7.8 billion[105] - Judicial deposits related to the inclusion of ICMS in the PIS/COFINS tax base amount to R$1.7 billion[119][128] Note 17: Equity As of March 31, 2024, the company's capital was R$20.2 billion, with Metalúrgica Gerdau S.A. holding 97.5% of common shares Share Ownership as of March 31, 2024 | Shareholder Group | Common % | Preferred % | Total % | | :--- | :--- | :--- | :--- | | Metalúrgica Gerdau S.A. | 97.5% | - | 33.3% | | Brazilian institutional investors | 0.3% | 15.3% | 10.2% | | Foreign institutional investors | 0.2% | 41.9% | 27.6% | | Other shareholders | 2.0% | 42.4% | 28.7% | | Treasury stock | - | 0.4% | 0.2% | - In February 2023, the company executed a capital increase by capitalizing R$966 million from retained earnings, issuing new shares as a bonus to shareholders in a 1-for-20 ratio[147] Note 18: Earnings Per Share (EPS) Q1 2024 basic and diluted EPS were R$0.97, a decrease from R$1.53 in Q1 2023, reflecting lower net income Earnings Per Share (in BRL) | EPS Type | Q1 2024 | Q1 2023* | | :--- | :--- | :--- | | Basic EPS (Common & Preferred) | 0.97 | 1.53 | | Diluted EPS (Common & Preferred) | 0.97 | 1.52 | Note 22: Segment Reporting The company operates four segments, with North America leading Q1 2024 net sales (R$6.4 billion) and operating income (R$1.3 billion) Q1 2024 Net Sales and Operating Income by Segment (in thousands of BRL) | Business Segment | Net Sales | Operating Income (before financial & taxes) | | :--- | :--- | :--- | | Brazil Operation | 6,435,355 | 195,565 | | North America Operation | 6,415,886 | 1,310,143 | | South America Operation | 1,190,598 | 227,466 | | Special Steels Operation | 2,608,409 | 310,036 | Total Assets by Segment (in thousands of BRL) | Business Segment | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Brazil Operation | 23,983,159 | 23,788,261 | | North America Operation | 25,243,002 | 22,589,796 | | South America Operation | 4,968,970 | 4,428,996 | | Special Steels Operation | 11,810,089 | 11,885,419 | Note 24: Subsequent Events Subsequent events include a R$4.06 billion capital increase, a R$589.0 million dividend approval, and a new R$1.5 billion debenture issuance - In April 2024, a capital increase of R$4.06 billion was approved via capitalization of retained earnings, with a bonus share issuance of one new share for every five held[174] - A dividend of R$589.0 million (R$0.28 per share) was approved on May 2, 2024, for payment on May 27, 2024[175] - On May 2, 2024, the Board approved a new 5-year, R$1.5 billion debenture issuance with a yield of 100% of the CDI rate plus a spread up to 0.60% per year[176]